CommonWealth REIT Up 3.4% Following Stifel Nicolaus Upgrade

By Michael Aneiro

CommonWealth REIT (CWH) shares were recently up 3.8%, or 85 cents, to $23.36, yielding just over 4%. Earlier today Stifel Nicolaus upgraded the office REIT to Hold from Sell. Yesterday CWH sold 30 million new shares at $19.00 apiece, saying it will use proceeds to buy back up to $450 million of CWH bonds. Here’s Bloomberg’s Brian Lousis reporting on the share offering:

CWH priced 30 million shares for $19 each amid objections from investors Keith Meister and Related Cos., who sued to stop the sale and proposed to buy the company for $27 a share.

The offering settlement is scheduled for March 5, the company said in a statement, several hours after Meister and Related raised a contingent offer to acquire the real estate investment trust from $25 a share. The two investors together own 9.8 percent of the Newton, Massachusetts-based company.

Meister’s Corvex Management LP and Related, led by Chief Executive Officer Jeff Blau, project that CommonWealth’s real estate assets are worth about $40 a share, according to a regulatory filing yesterday, and assert that poor management has driven down the value of the stock. With better management, the two investors expect CommonWealth could hit a target share price of more than $50, the filing shows.

Stifel says CommonWealth “appears to be ‘in play’ and we expect Corvex and Related to adjust their buyout offer accordingly,” hence the upgrade to Hold from Sell. “We judge CWH to be roughly a $15.00/share stock as an operating entity (accounting for the RMR external management and weak corporate governance discount), but a $20-$24/share stock on a NAV or liquidation basis post equity raise and debt tender, assuming a 8.5%-9.0% cap rate.”

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